What is counter-trend trading, what is trend trading, and what are the key points?
1. Counter-trend trading
- Refers to choosing a trading strategy that is opposite to the mainstream direction when the market trend is clear. For example: buying in a downtrend or selling in an uptrend to capture price reversals or mean reversion opportunities.
- Core concept: Based on market cyclicality and overbought/oversold states, it believes that prices will not move in one direction forever.
2. Trend trading
- Refers to trading in line with the current market trend, such as going long in an uptrend and going short in a downtrend, with the goal of capturing the continuation of the trend's profits.
- Core concept: Once a trend is established, it is difficult to reverse in the short term, so one must 'be friends with the trend'.
Two, Comparison of key points
（1）Key points of counter-trend trading
- Technical analysis: Relies on reversal patterns (e.g., head and shoulders, double bottoms) and overbought/oversold indicators (e.g., RSI, stochastic) to identify potential reversal signals.
- Fundamental verification: Assess whether prices are excessively deviating from actual value, such as supply and demand imbalance or sudden policy changes.
- Risk management: Strictly set stop-loss (e.g., position control within 5% of total funds) to avoid significant losses from counter-trend failures.
- Psychological quality: Need to counteract market emotions, such as buying during panic selling.
（2）Key points of trend trading
- Trend confirmation: Clarify trend direction using technical tools such as moving averages and trend lines.
- Continuous tracking: Dynamically adjust stop-loss positions, for example, using trailing stops to lock in profits.
- Simplified decision-making: No need to predict tops or bottoms, just follow the trend.
- Capital allocation: Gradually increase positions when trends are clear to avoid exiting too early.
Three, Comparison of advantages and disadvantages
| Strategy Type | Advantages | Disadvantages
| Counter-trend trading | High potential returns, suitable for capturing short-term reversal opportunities | High risk, requires precise judgment of reversal timing; easily 'trapped' by trend continuation |
| Trend trading | High win rate, suitable for medium to long-term positions | Entry points may be delayed; prone to frequent stop-losses in volatile markets |
Four, Applicable scenarios and recommendations
1. Applicable scenarios for counter-trend trading:
- Market exhibits extreme emotions (e.g., panic selling or euphoric rising).
- Need to combine with left-side trading strategies, building positions in batches and tolerating short-term floating losses.
- Suitable audience: Experienced traders with a strong risk tolerance.
2. Applicable scenarios for trend trading:
- Clear and strong continuity of trends (e.g., bull market in commodities).
- Need to combine with right-side trading, waiting for trend confirmation before entering.
- Suitable audience: Ordinary investors or traders seeking stable returns.